Did you fall in love with the beauty of Croatia? In that case, maybe you started thinking about tax residency in Croatia for digital nomads. Let’s discuss the most important facts around setting up tax residency in Croatia so you don’t need to worry that the tax authorities will come after your if you spend a decent amount of time in the country.
Living in Croatia
If you are a citizen of a country of the Schengen Area, you can enter Croatia without a visa. The reason is that citizens of the Schengen Area a free to move around the different countries. However, if you intend to spend more than three months in the country you should register yourself with the local authorities.
If you don’t hold a passport of the Schengen Area, you might need a visa to enter Croatia. In this case, you might be interested in looking into their digital nomad visa. Because citizens of the Schengen Area can freely move to Croatia, they cannot apply for the visa. This is good to keep in your mind when we dive deeper in the tax exemption that comes with the digital nomad visa.
Croatian tax rules
Tax residency in Croatia
Croatia considers you as their tax resident if you spend at least 183 days in the country during twelve months. Even if you wouldn’t actually spend the aforementioned amount of time there, you could still qualify as a tax resident. This is the case if you own or rent a property there that you have at your disposal for at least 183 consecutive days.
This second element is something to keep in mind if you consider obtaining a holiday home in Croatia. Double tax treaties could make sure you are not actually taxed in Croatia. Nevertheless, you should definitely asses this upfront.
Tax residency in Croatia for digital nomads: tax rates
Croatian income tax rates for professional income consist of two rates. The first tax rate is 20% and applies to an income up to around €48.000. On income above that amount a tax rate of 30% applies.
On top of these income taxes the municipality also levies a local surcharge. The exact percentage depends on the place you live in. Surcharges range from 0% to 18%. They are levied on the amount of federal income taxes due.
If you receive investment income (e.g. dividends, interests, capital gains) you will pay 10% in taxes.
Lump sum taxation for freelancers
Croatia has a specific tax regime of lump sum taxation in place for freelancers. The regime is called Paušalni obrt and is applicable to freelancers making up to around €40.000. By applying this regime, you will pay a maximum income tax of just under €1.000.
Furthermore, you can also apply the corporate tax rates (see below) to your business if you would want to.
Digital nomad visa: tax exemption
Digital nomads who apply for the digital nomad visa can get an exemption from income taxes. So, if you are a citizen from outside the Schengen Area and you need a visa in any case, this might be worth looking into. However, you will only be exempt from income taxes if you still are a tax resident somewhere else. If that won’t be the case, you’ll still have to pay Croatian income taxes.
Tax residency in Croatia for digital nomads: social contributions
The social contributions depend on the fact if you are an employee or a self-employed individual. Next, if you are self-employed, the social contributions depend on the income tax system you choose.
If you are subject to the general income tax rates, the social contributions amount to approximately €3.500 per year.
If you apply the Paušalni obrt Croatia offers you the possibility to pay a fixed amount of social contributions of around €2.250 per year as a self-employed individual.
For businesses subject to corporate income tax social contributions amount to approximately €6.100.
Setting up a company in Croatia
If the annual revenue of your company is below €995.000, the corporate tax rate amounts to €10%. If you’re turnover exceeds this threshold, the corporate tax rate is 18%.
The standard withholding tax in Croatia amounts to 10%.
Tax residency in Croatia for digital nomads: conclusion
Tax residency in Croatia for digital nomads is a good option if your professional income is below €40.000. In that case, you can benefit from the beneficial regime for freelancers. Even if you exceed that threshold, you could opt to pay taxes at the corporate tax rate. You can do this by setting up a company or by opting to be taxed under the corporate tax rules as a freelancer.